Business context and reporting period
The filing is Ipsidy Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020. The filing describes an identity-as-a-service business offering biometric identity verification, authentication and transaction processing, alongside payment-processing and card businesses. The supplied metadata names Authid Inc., but the filing itself identifies the registrant as Ipsidy Inc. (OTCQB: IDTY).
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $793,789 | $740,378 |
| Gross profit / margin | $438,066 / 55.2% | $563,915 / 76.2% |
| Operating loss | $(2,672,608) | $(2,168,374) |
| Net loss | $(3,836,421) | $(2,262,739) |
| Adjusted EBITDA loss (non-GAAP) | $(1,306,347) | $(1,592,207) |
| Cash from operating activities | $(1,172,710) | $(1,744,690) |
| Cash at period end | $562,248 | $2,920,895 |
| Current assets / current liabilities | $1,834,143 / $2,424,386 | $1,685,353 / $2,681,345 at Dec. 31, 2019 |
| Total liabilities | $8,028,087 | $5,261,644 at Dec. 31, 2019 |
Revenue increased about 7%, while gross profit and margin declined, principally because Cards Plus generated lower-margin sales and cost of sales rose. General and administrative expense fell about $658,000, while research and development expense was essentially unchanged. The company recorded an $871,807 goodwill impairment and a $985,000 charge related to extinguishment of a note; interest expense also increased. The adjusted EBITDA loss improved about $286,000, which management attributed mainly to reduced salary and technology spending.
Operating cash use improved year over year, but cash declined slightly during the quarter after financing proceeds. Working capital was deficient by approximately $590,000, and the company reported an accumulated deficit of about $90.8 million. At March 31, convertible debt, net of discounts and issuance costs, was $5,444,818; notes payable were $11,584, and capital- and operating-lease liabilities were also outstanding. The filing reports $6,355,000 of future convertible-note maturities in 2022.
Material changes, outlook and risks
- In February, Ipsidy raised $1.51 million through 15% senior secured convertible notes. The filing also describes the restructuring of a $2 million related-party note and $662,000 accrued interest, and the extension of maturity of existing 8% notes. The notes are secured by company assets, bear substantial repayment/conversion premiums, and mature in February 2022.
- Management estimated it would need to raise approximately $2.0–$3.5 million to fund its current business plan through December 31, 2020; there is no assurance financing will be available on acceptable terms. In May 2020, after quarter-end, the company received an approximately $485,000 Paycheck Protection Program loan and expected most of it to be forgiven.
- Management expected incremental revenue and cash generation from software deliveries to new customers in Q2 2020 and beyond, but gave no quantified revenue or earnings guidance. COVID-19 delayed customer and partner decisions; the South African Cards Plus operation had no activity in April. The pandemic also contributed to downward revenue assumptions and the goodwill impairment.
- The filing states there is substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, limited cash, reliance on further financing and the need to generate sufficient operating cash. No assurance of profitability or continued funding is given.
- Management said disclosure controls were effective as of March 31, 2020. It also described ongoing remediation of a prior internal-control deficiency related to goodwill and intangible-asset impairment procedures, with completion anticipated by year-end.
- Ordinary-course legal proceedings were reported, with no expected material adverse effect. The company stated there was no material change to the risk factors in its 2019 Form 10-K.
Important facts for investors to verify
- Confirm the registrant identity and ticker: this filing is for Ipsidy Inc., notwithstanding the supplied Authid Inc. metadata.
- Review the terms, security interests, premiums, conversion provisions and related-party aspects of the notes, and reconcile the stated $1.51 million financing with the larger debt balances and maturity disclosures.
- Assess whether the company can raise the estimated $2.0–$3.5 million, manage its near-term cash and working-capital deficit, and meet debt and other obligations.
- Monitor customer deployments, revenue conversion and the impact of COVID-19 on South African operations, sales timing and goodwill assumptions.
- Confirm the PPP loan’s final forgiveness or repayment treatment and progress on the company’s control-remediation efforts.